Supreme Court, New York County, September 17, 2020

Debevoise & Plimpton LLP, New York City (John Gleeson, Maura K. Monaghan and Jared I. Kagan of counsel), for defendant.

Nolan Heller Kauffman LLP, Albany (Justin A. Heller and Brendan J. Carosi of counsel), for plaintiffs.

In the instant action, defendant AdvantageCare Physicians, P.C. (ACPNY) moves for an order, pursuant to CPLR 3211 (a) (1) and (7), seeking to dismiss the amended verified complaint in its entirety based on documentary evidence and for failure to state a cause of action, thereby dismissing the action, with prejudice, and directing entry of judgment of the same. For the reasons stated herein, ACPNY's motion is granted and the action is dismissed.

This case arises out of the demutualization of nonparty Medical Liability Mutual Insurance Company (MLMIC) under a conversion plan approved by the New York State Department of Financial Services (Department of Financial Services) on May 31, 2018 (the plan). According to the plan, MLMIC was converted from a mutual insurance company to a stock insurance company and a part of this process required certain cash consideration to be distributed to policyholders by MLMIC. Plaintiffs Mario N. Cordaro, D.O., Patricia M. Deitz, M.D., Enas E. Hanna, D.O., Nigel I. Henry, M.D., Richard T. Rindfuss, M.D., and Jean Lesly Schmidt, M.D. (collectively plaintiffs) are all physicians who have been employed with ACPNY since January 1, 2013. In each of their respective employment agreements, ACPNY agreed to "provide Physician with professional liability insurance (medical malpractice) coverage at no cost to Physician." (NY St Cts Elec Filing [NYSCEF] Doc Nos. 60 ¶ 37.C; 61 ¶ 47.C; 62 ¶ 5.C; 63 ¶ 42.C; 64 ¶ 75.C; 65 ¶ 165.C [employment agreements].) ACPNY established by affidavit and documentary evidence that, as the policy administrator{**69 Misc 3d at 789} for the policies at issue, it obtained malpractice insurance policies for each of the individual plaintiffs and paid all of the premiums due and owing thereunder.

By letters dated August 2, 2018, ACPNY sent plaintiffs notices that were prepared by MLMIC that provided information about its conversion, including the payment of the cash consideration. The ACPNY cover letters that accompanied the MLMIC notice requested that plaintiffs each sign the enclosed consent forms thereby permitting MLMIC to pay each plaintiff's respective cash consideration directly to ACPNY. Each plaintiff signed the consent form that was sent to him or her by ACPNY, which "designate[d] [ACPNY] as agent to receive any distribution that may be allocated to the undersigned upon the consummation of the announced . . . conversion." (NYSCEF Doc Nos. 78-83.) In accordance with the executed consent forms, and as part of the demutualization process, MLMIC distributed the respective cash considerations attributed to plaintiffs' individual policies directly to ACPNY.

In an attempt to recover their respective cash considerations, plaintiffs have filed the instant lawsuit. In the within action, plaintiffs have asserted the following nine causes of action: breach of fiduciary duty, fraudulent misrepresentation, fraudulent omission/concealment, constructive fraud, negligent misrepresentation, mutual mistake, conversion, unjust enrichment, and money had and received, seeking to recover a total of $4,610,703.87 plus interest from the date ACPNY received their cash considerations.

This court is bound to follow the precedent set by the Appellate Division, First Department, in Matter of Schaffer, Schonholz & Drossman, LLP v Title (171 AD3d 465 [1st Dept 2019]), which also dealt with the demutualization of MLMIC. In Schaffer, the First Department held that "[a]lthough [the individual professional] was named as the insured on the relevant MLMIC professional liability insurance policy, [the employer] purchased the policy and paid all the premiums on it. . . . Nor did she bargain for the benefit of the demutualization proceeds." (171 AD3d at 465.) Thus, "[a]warding respondent the cash proceeds of MLMIC's demutualization would result in her unjust enrichment." (Id.) As such, "[t]he relevant inquiries under Schaffer are (1) who paid the premiums to MLMIC and (2) whether there was a bargained-for exchange with respect to the Cash{**69 Misc 3d at 790} Consideration from the demutualization process." (Sullivan v Medical Liab. Mut. Ins. Co., 2019 NY Slip Op 33566[U], *4 [Sup Ct, NY County, Dec. 2, 2019, Ostrager, J.] [emphasis omitted].) Here, it is undisputed that ACPNY paid the premiums in question and there is no proof of any bargained-for agreement regarding the cash considerations at issue. Thus, the result must be the same as that in Schaffer (see [*2]Phelps Mem. Hosp. Assn. v Heier, 2020 NY Slip Op 32514[U], *5 [Sup Ct, NY County, July 27, 2020, Nock, J.]) and, accordingly, ACPNY's motion is granted and the action is dismissed. Contrary to the facts in Columbia Mem. Hosp. v Hinds (65 Misc 3d 1205[A], 2019 NY Slip Op 51508[U] [Sup Ct, Columbia County 2019]), the malpractice insurance was not part of plaintiffs' respective compensation or employment agreements since the policy premiums were not treated as an expense that reduced plaintiffs' pay in any way and, thus, they maintain no rights in the insurance policies or the cash considerations from MLMIC's demutualization. (Columbia Mem. Hosp., 2019 NY Slip Op 51508[U], *5-6; Sullivan, 2019 NY Slip Op 33566[U], *3-4; see Wyckoff Heights Med. Ctr. v Monroe, 2020 NY Slip Op 32580[U], *9-10 [Sup Ct, Kings County, Aug. 7, 2020].)

Nonetheless, plaintiffs claim that they are entitled to their respective cash considerations under Insurance Law § 7307 (e) (3),^[FN1] MLMIC's plan of conversion, and the Department of Financial Services because they are "policyholders."^[FN2] The essence of plaintiffs' argument is that, commensurate with the{**69 Misc 3d at 791} position taken by the Third and Fourth Departments, discussed infra at note 3, as the policyholders, they are solely entitled to receive their respective cash considerations and ACPNY's designation as policy administrator as plaintiffs' agent was only for the purposes of managing the insurance policies. However, this view is contrary to the First Department's decision in Schaffer, and, thus, plaintiffs' argument fails. (171 AD3d 465; Sullivan, 2019 NY Slip Op 33566[U], *4 [holding that "the dispute among the parties regarding whether (the) defendant (entity) properly served as a 'policy administrator' is irrelevant" under the First Department's analysis].) Plaintiffs' argument also fails for a second reason—that although plaintiffs are policyholders, they signed consent forms assigning their respective cash considerations to ACPNY.

However, the statutory text of Insurance Law § 7307 did not contemplate a situation involving a demutualization plan and an accompanying cash consideration payment wherein the policyholder did not pay the premiums. (See Sullivan, 2019 NY Slip Op 33566[U], *4-5; Wyckoff Heights Med. Ctr., 2020 NY Slip Op 32580[U], *4-9.)^[FN3] Similarly, the Department of Financial Services recognized this same statutory tension in a decision dated September 6, 2018. (See Matter of the Plan of Conversion of Med. Liab. Mut. Ins. Co. and the Acquisition of Control of{**69 Misc 3d at 792} Med. Liab. Mut. Ins. Co. by Natl. Indem. Co. [Sept. 6, 2018], available at https://www.dfs.ny.gov/system/files/documents/2019/01/mlmic_decision_20180906.pdf.) The Department of Financial Services explained that "Insurance Law § 7307 (e) (3) defines the policyholders eligible to be paid their proportional shares of the purchase price, but also recognizes that such policyholders may have assigned such legal right to other persons" and explained the plan's objection procedure when there is a dispute over who is entitled to a specific cash consideration payment. (Id. slip op at 23.) Further, as is relevant here, the Department of Financial Services has determined that a party's status as "policy administrator" does not necessarily entitle that party to receipt of the cash consideration, but, rather, this is an issue for the court to determine based upon the facts and circumstances of the parties' relationship. (Id. slip op at 24-25.) Additionally, a cash consideration can be distributed to a policy administrator based upon written instructions from someone designated as such. (Id. slip op at 23-24.)

As "[a]n administrative agency's construction and interpretation of its own regulations and of the statute under which it functions is entitled to the greatest weight" (Matter of Tommy & Tina, Inc. v Department of Consumer Affairs of City of N.Y., 95 AD2d 724, 724 [1st Dept 1983] [internal quotation marks and citation omitted]), the Department of Financial Services' interpretation of the Insurance Law should be followed. The Department of Financial Services' interpretation of the Insurance Law aligns with that of the First Department's interpretation in Schaffer, which considers additional factors regarding the parties' relationship beyond the plain text of Insurance Law § 7307, discussed, supra, and adds a third factor—whether the insurance contract was part of the individual professional's compensation package. (See Matter of the Plan of Conversion, slip op at 23-24; Schaffer, 171 AD3d at 465; Sullivan, 2019 NY Slip Op 33566[U], *3-4; Columbia Mem. Hosp., 2019 NY Slip Op 51508[U], *5-6; [*4]Wyckoff Heights Med. Ctr., 2020 NY Slip Op 32580[U], *9-10.) Where none of these factors are met, the individual professional is deemed to be a passive policyholder with no right to the cash consideration. (See Wyckoff Heights Med. Ctr., 2020 NY Slip Op 32580[U], *9-10.) The result is the same under this analysis. These same factors were analyzed above and resulted in the dismissal of the instant action.

Nonetheless, this court will briefly examine why each of plaintiffs' claims fail. First, plaintiffs' eighth cause of action for{**69 Misc 3d at 793} unjust enrichment fails for the reasons stated above and based upon the binding precedent in Schaffer. Second, with respect to plaintiffs' fraud claims—the second through fifth causes of action for fraudulent misrepresentation, fraudulent omission/concealment, constructive fraud, and negligent misrepresentation—ACPNY has not made a false statement of fact or material omission in any of its statements or emails that plaintiffs have relied upon, or had a duty to disclose material information and failed to do so. (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 178-179 [2011] [fraudulent misrepresentation, fraudulent omission, and negligent misrepresentation]; Gomez-Jimenez v New York Law Sch., 103 AD3d 13, 17-18 [1st Dept 2012] [fraudulent concealment].) Here, this court is "not required to accept factual allegations that are contradicted by documentary evidence, or legal conclusions that are unsupportable in the face of undisputed facts" (Zanett Lombardier, Ltd. v Maslow, 29 AD3d 495, 495 [1st Dept 2006]), especially where plaintiffs signed consent forms to assign their respective legal rights to the cash considerations over to ACPNY after being notified of MLMIC's demutualization. Thus, "there were no actionable misrepresentations or concealments." (Id.) Additionally, "[p]laintiffs failed to plead fraud with the particularity required by CPLR 3016 (b) . . . . The conclusory statement of intent did not adequately plead sufficient details of scienter." (Id. at 495-496 [citation omitted].) As such, plaintiffs' fraud claims and claim for negligent misrepresentation fail.

Third, with respect to plaintiffs' claim for breach of fiduciary duty, this first cause of action must be dismissed because it is based on the same allegedly wrongful conduct as plaintiffs' fraud claims and claim for negligent misrepresentation and, therefore, fails to state a cause of action. (See e.g. Burry v Madison Park Owner LLC, 84 AD3d 699, 700 [1st Dept 2011] ["plaintiffs' allegations of 'misconduct' on the part of defendant are in essence claims of fraud that have not been pleaded with particularity"].)

Fourth, plaintiffs' seventh cause of action for conversion and ninth cause of action for money had and received also fail because plaintiffs have no legal or equitable claim to the cash compensations at issue. Here, plaintiffs knowingly assigned their respective rights to their cash compensations to ACPNY as discussed, supra. Accordingly, "[t]he voluntary payment doctrine, which bars recovery of payments voluntarily made with full knowledge of the facts and in the absence of fraud or{**69 Misc 3d at 794} mistake of material fact or law" (Kirby McInerney & Squire, LLP v Hall Charne Burce & Olson, S.C., 15 AD3d 233, 233 [1st Dept 2005] [dismissing cause of action for conversion]), "bar[s] the plaintiffs' common-law causes of action alleging unjust enrichment, money had and received, and conversion" (MacDonell v PHH Mtge. Corp., 45 AD3d 537, 539 [2d Dept 2007]). Further, the amended verified complaint fails to state a cause of action for conversion because a claim "for the conversion of money [will only lie] where there is a specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question." (Lucker v Bayside Cemetery, 114 AD3d 162, 174 [1st Dept 2013], quoting Amity Loans v Sterling Natl. Bank & Trust Co. of N.Y., 177 AD2d 277, 279 [1st Dept 1991].) Additionally, "[t]he plaintiff must have a superior right of possession to the funds, and the defendant must have exercised unauthorized dominion over the funds to the exclusion of the plaintiff's rights." (Id.) [*5]Moreover, "under the plain language of the Insurance Law, the cash consideration cannot be given to [an agent] unless [the individual professional] signs the agreement to do so." (Columbia Mem. Hosp., 2019 NY Slip Op 51508[U], *4.) Here, ACPNY did not have an obligation to return the cash compensations and was authorized by plaintiffs, via the executed consent forms, to obtain the cash compensations from MLMIC. (See 87 Mezz Member LLC v German Am. Capital Corp., 162 AD3d 524, 525 [1st Dept 2018] [affirming dismissal of plaintiffs' conversion claim where possession was "not 'unauthorized' "].) Similarly, plaintiffs' cause of action for money had and received fails because plaintiffs "did not identify any corpus of funds that belonged to [them], or which [were] supposed to be paid to [them] but [were] instead paid to [ACPNY]" as money that ACPNY benefitted from and "under principles of equity and good conscience, [it] should not be permitted to keep." (Lebovits v Bassman, 120 AD3d 1198, 1199 [2d Dept 2014].) Thus, plaintiffs' claims for conversion and money had and received fail.

Finally, plaintiffs' sixth cause of action for mutual mistake also fails. "While mutual mistake will justify rescission where the mistake exists at the time the contract is entered into and the mistake is substantial, it may not be invoked by a party to avoid the consequences of its own negligence." (P.K. Dev. v Elvem Dev. Corp., 226 AD2d 200, 201 [1st Dept 1996] [citation omitted].) The First Department has held that one party's "alleged {**69 Misc 3d at 795}statements as to his after-the-fact understanding of the agreement are insufficient to invalidate the agreement" and thereby constitute mutual mistake. (Zacharius v Kensington Publ. Corp., 167 AD3d 452, 454 [1st Dept 2018]; see also Resort Sports Network Inc. v PH Ventures III, LLC, 67 AD3d 132, 136 [1st Dept 2009] [holding that unilateral mistake is insufficient "to rewrite an agreement that is complete on its face, (and) unambiguous . . . . '(R)eformation is (only) granted . . . to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties' " (citations omitted)].) As discussed, supra, plaintiffs executed the consent forms that permitted MLMIC to distribute their respective cash compensations to ACPNY. From the cover letter and notice distributed to plaintiffs with the consent forms, it is apparent that ACPNY believed it was entitled to receive plaintiffs' cash compensations, and plaintiffs' executed consent forms indicate the same mutual belief. Plaintiffs cannot now claim, after the fact, that signing the consent forms was a mistake or that they only did so negligently with limited knowledge. Further, there is no indication, based upon these facts, that there was even a unilateral mistake on plaintiffs' behalf. As such, plaintiffs' claim for mutual mistake fails.

Based upon the foregoing, it is hereby ordered that defendant AdvantageCare Physicians, P.C.'s motion is granted, and the action is dismissed.

"each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the resolution . . . shall be entitled to receive in exchange for such equitable share, without additional payment, consideration payable in voting common shares of the insurer or other consideration, or both. The equitable share of the policyholder in the mutual insurer shall be determined by the ratio which the net premiums (gross premiums less return premiums and dividend paid) such policyholder has properly and timely paid to the insurer on insurance policies in effect during the three years immediately preceding the adoption of the resolution by the board of directors."